The Psychology of FOMO: How to Stay Disciplined in Today’s Wild Markets, Ep. 320

This week on The Capitalist Investor, Derek and Dave Abate break down how today’s hyperconnected world is reshaping the way we invest. From the rise of FOMO (Fear of Missing Out) and the viral spread of market rumors to the explosive growth of meme coins and NFTs, they explore the emotional traps that can derail even seasoned investors. Learn how instant-access trading apps, social media, and influencer hype have made the market more reactive than ever—and what you can do to stay grounded. They also share real-world strategies on taking emotion out of investing, including setting clear plans, diversifying, and using a “sandbox” portfolio for speculative plays. 

If the market noise has you second-guessing every move, this episode will help you refocus and invest with confidence.

Transcript

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Hey, Dave. So I think we're gonna talk about a little fear of missing out this week. So do you think that the fear of missing out is the new Keeping up with the Joneses? Unquestionably, Derek. Yep. If your neighbor gets that hot investment and he shows up with a new Corvette in his driveway, you are gonna be pretty upset you didn't follow him on that trade. It can't lose, right? Yeah, we can't lose. So we're gonna talk about how to remove the fear of missing out from your overall investment process. All right, well. Hey, Dave, how you doing today? I'm doing great, Derek. So good to be back two weeks in a row. I know. We thank you very much for that. Tony is on assignment again. Dude's just traveling all over the place. World traveler. Yep. I think. Where is. Do you know where he's at this weekend? I think he's in Florida. Oh, Florida. Fort Lauderdale. So nice. Hopefully he gets around to golfing. Yeah, I hope so. He's in a better mood when he golfs. That's for sure. That's for sure. Although I played. Started playing golf last week, it did not start off well. Just some rust from the early part of the season. Yeah, well, I went. I went on my golf trip like two weeks ago, and that. That went pretty well. But then I got back last week and my. My Wednesday night league started and it was car path only. It was wet. They couldn't even cut the rough. So it was like thick and it was. It was a battle. So I got to go back out there tonight, hopefully redeem myself. Yes, it'll be drier for sure. Yep. So, you know, speaking of missed opportunities here, we got a pretty good topic this week. Something that we've been talking about for a while, you know, on and off, but the fear of missing out kind of the. The psychology of investing and kind of, you know, what's driving, I think a lot of people's decisions and markets these days. Fomo, the fear of missing out. And, you know, it's. It's been, you know, if you look at today's environment and you look at the, you know, really all of the tools that are available to. To everyone, it's really changed. Changed the landscape of investing from. Compared to, you know, maybe when. When we first, you know, got into the industry. So you got, you know, Robin Hood apps. You got apps on every major carrier. You can, you know, place trades from your phone anytime that you want to. So it's really. The avenue to invest is really available to everyone. Now that. That's right. It's like ubiquitous, right? You can go on your phone, you're making trades, you're, you're, you know, you're, you're picking stocks. Like it's all around. There's no barriers to entry. Back in the day, you used to have to have like an account with a broker, right? Call them up. Like, hey, does this, you know, this sound good? Or you know, he's calling you and pumping a stock. Like, it's so available, it's so in your face. And with this, you know, I said the younger generations are coming on board. I think it just plays into that, like, shorter attention span, instant gratification kind of mindset. Yeah, absolutely. And you know, the information is also in your face 24 7. Yes. It is a 247 news cycle. And you see it, man, when you watch this stuff every day, you see how, you know, one piece of news can hit X or Twitter or social media and it just absolutely blows up. And you know, it was a, is a great example from month, six weeks ago, something like that. We're in the middle of the, the trade war stuff. You know, everyone's all grumpy, market's down. And then there was this rumor that popped up that, you know, you know, that, that the White House agreed to a 90 day pause with, with basically everybody. And I think the market was down like 3% and then it popped up like 4%. It was one of the biggest swings in history. Yeah. And, and it was, you know, based on false information. You know, the go ahead. Exactly. It's never been so easy to kind of like shoot up a flare and get a head fake out there. Just like based on nothing. Right. Just people trying to front run trades that may not even be based on reality. So, you know, we saw it play out in real time. Yeah, for sure. And you know, the, you get all those updates, but you also get information so much faster. So you want to talk about FOMO and fear of missing out. You know, we, we were talking NFTs, we were talking about, you know, even crypto or like meme coins, dogecoin bananas. Taped to the wall. Yeah, well, that's money laundering. That's a different thing. But yeah, you know, the, it's an amazing world that we live in where, you know, any random person could put information out there on the Internet and it gets picked up and spread around and you know, next thing you know, you're put to a decision, right? There's, you know, the newest meme coin is out there you don't really know what a meme coin is. You don't really know what they do. But you go on Twitter and you see the value of these random coins increasing 10x30x100x, and you don't want to miss out on that, right? And then what makes it so much more powerful, the message or the emotions to run that much hotter, is when you see some of these influencers on social media, like, you know, driving around in a Lambo, a yellow Lambo, right? And it's like, this is so easy. Like, just follow my pattern. And it's like there's no fundamental analysis anywhere in this equation. It's just literally your brain connecting these, like, signals that shouldn't be connected. And it's just. It snowballs from there, right? It picks up a little steam, and all of a sudden, you know, the. The jealousy factor kind of kicks in, and people just don't want to miss the boat on he is my quick ticket for success. Yeah. And that's. And that's really. That's really what it comes down to is, you know, it's kind of the psychology behind not. Not wanting to miss out. You know, before, you know, 20 years ago, you might have heard something on the news or you might have heard your friend talking about it or something like that, you know, and whether it be a stock or an investment, there's a lot less. There was a lot less kind of driving force behind, you know, making decisions. When. When you. When you see, you know, the. The entire Internet blow up about something, and then it hit, you know, mainstream media. I just remember the. The. The bored apes. You know, there was Jimmy Kimmel buying them and Justin Bieber talking about it. I think they were actually talking about it on. On the Tonight Show. You know, you see, you know, regular people online having a, you know, a $300,000 picture of a monkey, like, you want in on that. And I feel like that was a byproduct of COVID maybe with people with just in isolation and not being able to have, like, normal social interactions and just bored. Yeah. Right. So they're looking for ways to spend their time. Maybe not the most productive way possible. Yep. So, you know, if. If you are, you know, thinking of, you know, investing in something that's outside of the norm, you know, maybe that would, you know, be in the. The category of. Of. Of this FOMO that. That we're talking about. The. The kind of, the psychology behind it. You know, you have to be. You have to be very cognizant of of what you're getting into. You know, so when, when a, you know, a meme coin or, you know, even a penny stock, even, even, you know, even a regular stock on an exchange, if you turn, if you turn on, you know, Fox Business or whatever, and you see something going parabolic and it's up, you know, 60% on the year, you want in on that, right? You're not, you're not going to do a bunch of fundamental analysis. You're not going to do a bunch of cost analysis. You're not going to compare it to other investments. You're just like, hey, I want in on this. I'm going to buy. You're exactly right. And I think you're kind of hitting on. It's like you almost have to anticipate it coming and have mentally a game plan of how to address these situations before they arise. Because in the moment, you may kind of succumb to the pressure and just hit that buy button maybe when you shouldn't have. So you need to have a preconceived game plan before that next opportunity hits you. Yep, for sure. And you know what? Maybe one little example I can share is like, my crypto buying habits. You know, I was obviously in on a lot of. A lot of these coins and, you know, they don't call me diamond hands for nothing. I still haven't sold anything. But, you know that bitcoin now for sure is part of the mainstream. Right. That's on the ticker on all the shows. But you don't really think about it until it's, you know, exploding in one direction, you know, up or down. The crypto game for sure, is one that you need a level head to be successful. If you're buying on the upswing and on the momentum of a lot of these trades, you're probably going to get left behind. You're probably going to lose, you know, quite a bit of money. So, you know, kind of what I've done over time is trying not to buy into the hype, you know, trying. So, you know, basically I set up for bitcoin like monthly or bi. Monthly buys, you know, so I'm just adding a little bit to the position over time, not looking at the price, you know, not buying on the momentum one way or the other. And I've been pretty good at, you know, just sticking to that. Yeah, I mean, you're describing a dollar cost averaging kind of plan with discipline and Derek, like, we all can. We all see it, like when that price starts to kind of climb, that it hits a crescendo on, on social media. Like all my algorithm goes nuts. It's like everything is bitcoin and everything is crypto and, and it goes back to like rule number one of investing. Right. I thought it was always like, buy low and sell high. And this enthusiasm that percolates at that point is like, it's kind of triggering your brain to say, hey, I need to buy this. And it's at all time high prices. Right. So you're not getting any kind of a value when you do that. And you know, your approach allows you to actually buy more when the price is lower over time, which kind of sets the table for you to have a better result. Yep, for sure. So, you know, I think also like something a stock like Nvidia could be, you know, definitely considered, you know, in on, on what we're talking about. That that was one of the most talked about stocks and still is, you know, to this day. So when there's lots of talk, when there's lots of momentum, when there's lots of big price swings which are going to happen more, the more investors you get in, the bigger the swings are going to be. You know, it can get, it can get really frustrating, you know, especially when you're, when you're battling the psychology of not wanting to miss out. Yes. Derek, you know, we talked about, you know, what we do, right. We're human, we're wired a certain way. Like, my approach has always been like, carve out a portion of your portfolio that you allow yourself to have fun with. Yep. Right. This is my sandbox. Like, I'm going to pick some stuff that I'm really excited about, but it's going to be a size that's not going to jeopardize my whole strategy and not going to ruin my retirement. Right. What is that dollar amount where as you know, as a lot of people in the office say, if it literally went to zero, it's not going to impact your life and your lifestyle going forward. Yep, for sure. And you know, it's, it really goes back to kind of the disciplines of investing and kind of what Dave's talking about there. You know, just start with a plan, you know, so I know we have a lot of fun. We talk about crypto, we talk about NFTs, but you know, if you add all that up together, for me, we're talking less than probably 1% of my overall, like investable assets. Right. You know, I still have a 401k with mutual funds in there. You know, Apple stock And, you know, boring stuff like that. So, so have a plan going in. And we've been saying it for a while, and Dave just said it there again, if you're going to get into the speculative stuff, just don't bet what you can't afford to lose, I think is the easiest way to say it. Yeah, exactly. Right. Know your limits going in and then allow yourself to have a little fun. But don't, you know, don't jeopardize the whole strategy just because you got ahead of yourself. Yep. You know, and I think we can kind of, you know, close it down with, you know, what do they say, like, admitting you have a problem is the first step. Yes. So, you know, just understanding this, I think, is a, Is a very powerful thing for an investor. Just knowing that, you know, you're going to have these, these feelings and these emotions if you miss out on something and, you know, being able to identify that and saying, hey, I missed this one, you know, what is my strategy going to be? To not. To not miss the next one. Exactly. Exactly. And, you know, it's. That's really what it comes down to. And it is really kind of what we do here is pulling, hopefully pulling emotions out of investing decisions that really, honestly, that really only comes through time and experience. You know, I don't want to say, like, I wasn't worried, you know, like, in the middle of the tariff stuff and, you know, it's certainly not over by a long stretch, but, you know, it's patience with investing, you know, especially someone in our age bracket. You know, we're not retiring tomorrow. We have time to recover. And I think it goes back to your overall plan and your overall strategy. That's right, Derek. And one quick thing, too. I think experience is the best teacher. Right. So if you do, if you have gone down this path and, you know, and one of your speculative investments have blown up, like, don't let it be a lost lesson. Like, remember that feeling and avoid it for the next time. Right. And get yourself back on track. Absolutely. That's exactly what I was about to say. You know, it's. Yeah. You, you sometimes you have to learn these things the hard way. I'm sure everyone listening out there probably has a story. You know, I, I obviously have, have stories as well. There, there are no Ls, only lessons. Is that what, what the kids say? So, so learn those lessons when, when, when you make mistakes. Because, because you're going to. We do. We're not batting a thousand here by any stretch of the imagination. You Know, it is diversification, you know, spreading out your risk. All of that is very, very real stuff because you can. You can do all the things that we're talking about. You can do your research, you can identify good value, and you can execute on that strategy, and it can go the complete opposite direction for. For no reason at all. This is kind of really what we're talking about is to, you know, when you have a plan and you have conviction, you know, you can. You can kind of dissipate those emotions and kind of stick to your game plan versus making those emotional decisions. That's right. That's right. Do that stuff in advance. Take that stuff in advance. Set, set yourself up far in advance before the emotions kick in and you'll be on a path for good things. Yep, for sure. So. But yeah, you know, when you're out there, if you're, you know, making your own investments, I think understanding what we just talked about is going to be very important for you. Understanding to separate the emotions from. From the data and from the reason is going to be something you're going to want to learn to do to be successful. Absolutely. And like we said, carve that little sandbox out. Don't be afraid to have some fun with it as well. Yep, absolutely. So, so, yeah, so, excellent topic today. Enjoy talking about that one. You know, we're still kind of getting over the. The Cavs inexplicable loss here, so we're. We're kind of bummed out about that this morning. Going to be a long off season there. We're going to focus on the guards and the Browns now. Yeah. Yeah, the four months of quarterback battle, that should be. That should be fun to talk about. Relentless. Well, Dave, thanks again for. For filling in for Tony. We always appreciate having you here, and thanks for everyone for listening out there. If you guys have any questions or comments, show ideas, hit us up@infowpconnect.com and we'll talk to you next week. The opinions expressed in the podcast are for general informational purposes only and are not intended to provide specific advice or recommendations for any investment, legal, financial or tax strategy. It is only intended to provide education about the financial industry. Please consult a qualified professional about your individual needs.